The ambiguity effect can prevent us from giving two viable options equal consideration, resulting in suboptimal decisions. We may automatically decide against something based solely on the fact that we feel that putting our trust in the unknown is too risky. Succumbing to this cognitive bias prevents us from reaping the long-term benefits of riskier decisions. 

This aversion to ambiguity can impact various aspects of our lives, influencing everything from important matters of health and finances to the more mundane decisions we make at the grocery store. For example, homeowners tend to opt for fixed-rate mortgages due to their predictability, even though adjustable-rate mortgages sometimes offer more savings in the long run. The same effect can influence our healthcare choices, making us hesitant to follow treatment plans we don’t fully understand—check out Example 1 below to explore this issue in more detail.

As mentioned, the ambiguity effect can even influence our shopping choices. One study found that the ambiguity effect plays a role in our preferences for established brands, even though other products might have better qualities or features.⁵ We know what to expect when we buy familiar brands, so brand-name products and household staples always feel like a safer option. However, avoiding the ambiguity of an unfamiliar brand can mean missing out on some superior products—or products that perform similarly at a lower price.

The ambiguity effect can influence small choices made in our day-to-day lives, but it also impacts decision-making on a much larger scale. It can cause institutions, like schools, companies, and governments, to remain committed to failing systems, instead of introducing new policies or programs with the potential for improvement. This happens because even though these changes could better the system, things could still go astray and ultimately result in us being worse off than when we started. Even if the current system isn’t optimal, sticking with it feels safer than implementing change because it is understood and its course is more predictable. Ignoring these calls to action by deciding against taking a risk can cost institutions—and the people they’re supposed to be benefiting—greatly.

Similarly, the ambiguity effect can also impact overall stock market participation, which has sweeping effects on the economy. Research shows that investors are more likely to sell their shares or withdraw capital from equity funds when facing increased ambiguity.⁷ This tendency for investors to withdraw during periods of uncertainty contributes to market volatility and stifles economic growth. The ambiguity effect would assume that investors are more likely to hold onto their investments if they have more information about their potential outcomes. As expected, a study found that investors who perceive less ambiguity about a particular financial asset are more likely to invest in it.8 This same study also found that perceived ambiguity is lower among investors with better financial literacy, suggesting that education is key to reducing ambiguity and encouraging stock market participation, thereby contributing to a more stable economic system.

As with other cognitive biases, there are several theories behind why the ambiguity effect occurs. One is that it is a “rule of thumb” useful for quick, effortless decision-making and problem-solving. Another is that higher levels of ambiguity aversion make people more likely to exhibit this bias.

Rule of thumb

It has been suggested that the ambiguity effect is the result of a heuristic used to facilitate decision-making. Like other heuristics, the ambiguity effect acts as a guideline for describing a general approach to problem-solving. This strategy occurs automatically and effortlessly, helping you to reach a conclusion quickly. Heuristics have endured for as long as they have because oftentimes, they are right. However, by using them, we risk drawing a conclusion that is inaccurate or misinformed because we fail to engage logic and reason.

To an extent, the ambiguity effect is an adaptive response. People prefer options that they feel well-informed about to options that they feel leave too much to the imagination. This can be useful for avoiding options for which we genuinely have too little information to go on. Even better, the ambiguity effect can lead us to seek out more information about the ambiguous option, so as to make a more informed decision.¹

This rule of thumb does work on some occasions. That being said, over-reliance on this heuristic is not ideal. As explained by Frisch and Baron,² the ambiguity effect is a type of framing effect, such that any option can be made to seem ambiguous or unambiguous, simply by drawing attention to or away from certain unknown elements of it. Essentially, one can never know everything about a given option. Believing that one does can simply be the result of “a lack of imagination about what information one could have." Thus, while using this heuristic certainly makes decision-making easier, it is not nearly reliable nor effective enough for it to be used in all situations. This is especially true when it comes to making decisions that carry a lot of weight.

Ambiguity aversion

Say you’re presented with two options. The probability of the first option resulting in a certain favorable outcome is known. In contrast, the probability of the second option resulting in said outcome is unknown. If you tend towards the former option, you’re exhibiting a behavior referred to as ambiguity aversion. It’s this distaste for ambiguity that drives the ambiguity effect.

Although they are similar, ambiguity aversion and risk aversion are two distinct behaviors.³ It’s important to differentiate between them to accurately grasp the concept of ambiguity aversion. Risk aversion occurs in situations where the probabilities of different options resulting in certain outcomes are known. In these cases, those who are more risk-averse will choose the option that results in a smaller payoff, because it has a greater probability of success than the option with the potential for a larger payoff.

In situations where ambiguity is minimal, men, in general, display more ambiguity aversion than women. However, as the situation becomes more ambiguous, this gender difference starts to disappear and men and women begin to exhibit similar levels of aversion.⁴

Unlike risk aversion, which is linked to several different traits, such as IQ and ambition level, ambiguity aversion is not predicted by any psychological measures.⁵

While this demonstrates that risk aversion and ambiguity aversion are two distinct parameters, it does not explain why ambiguity aversion occurs. The lack of correlation with ambiguity aversion significantly limits our understanding of the ambiguity effect.

Different people have different levels of ambiguity aversion. Those who are higher on this trait are more likely to display the ambiguity effect. Unfortunately, since we do not have a clear understanding of why some people exhibit more ambiguity aversion than others, we cannot provide a complete explanation as to why the ambiguity effect occurs.

As with any other cognitive bias where decision-making is compromised, it is important to understand what the ambiguity effect is and how it influences us. From there, we can work towards cultivating the ability to recognize when we’re engaging in this bias. This awareness will help us avoid this bias altogether, which will enable us to make well-informed decisions based on reason.
As we’ve seen, mitigating the ambiguity effect is crucial for making rational decisions, whether we’re choosing where to invest our retirement money or which type of dish soap to buy.  From boring matters of finance to the more intimate choices that shape our personal lives, understanding this bias can help us become more open to exploring other opportunities rather than sticking with options that promise safer outcomes. The ambiguity effect explains why we so often settle for “good enough” rather than reaching for the best. By seeking uncertainty rather than avoiding it, you can make better choices for your personal and professional life. Reducing the influence of the ambiguity effect means stepping out of your comfort zone and embracing the risk that something different—a different job, a different menu item from your favorite takeout place, a different brand of shampoo—might be worse than the safe option, but more importantly, it could actually be better.

To avoid limiting ourselves, we need to learn to override our initial impulse to avoid ambiguous options and situations. As with any heuristic, the first step to doing so is recognizing its existence and its influence over our decision-making. 

A major part of avoiding the ambiguity effect is being willing to put the time into making decisions. Heuristics allow us to make decisions effortlessly and automatically. We’re faced with so much information and so many choices within a given day that this can be an efficient way to allocate our mental resources. Like with most biases, quick, rash decisions are more susceptible to the ambiguity effect. However, certain decisions deserve more effort. When possible, try to slow down and recognize that careful consideration is essential for making a sound decision. The less ambiguous option may initially seem more desirable, but, as Frisch and Baron point out, you might actually know less about it than you think you do.¹ 

It can be helpful to reframe the situation. This may reveal that the less ambiguous option isn’t as superior as it seemed. Furthermore, when assessing the more ambiguous option, it’s important to focus not just on what can go wrong, but also on what can go right. When faced with ambiguity, we tend to imagine the worst-case scenario, forgetting that there’s an equal likelihood that the outcome could be the best-case scenario.

One of the easiest ways to overcome these cognitive tendencies is to seek more information. Take the time to do your research, ask clarifying questions, and analyze your choices carefully. Once you’ve assembled your information, creating a simple pros and cons list is a great way to shift your mindset from avoiding uncertainty (ambiguity averse) to embracing it (ambiguity seeking). In fact, one study found that counting the pros and cons of each choice results in a significant shift from ambiguity-averse to ambiguity-seeking, as this encourages people to think about the potential outcomes of all choices. As a result of this careful analysis, the less ambiguous option becomes less favorable than it once seemed, and the more ambiguous option seems less risky in comparison.⁹

How does the ambiguity effect differ from risk aversion?

While the ambiguity effect is similar to the concept of risk aversion, the two biases are distinguished by how much information the decision-maker has. The ambiguity effect occurs when we know the probability of a certain outcome for only one of the available options. Meanwhile, risk aversion occurs when we know both probabilities yet still gravitate towards the option with a smaller payoff but a greater likelihood of success. Unlike risk aversion, research suggests that ambiguity aversion more likely reflects a general caution towards uncertain options than an expectation of negative outcomes.⁶ In both cases, our dislike of choosing options we consider to be risky can limit our ability to make the best decisions. We end up making “good enough” decisions rather than optimal decisions, and the influence of both biases can have a significant impact on everything from our financial well-being to our professional growth. For example, risk aversion might encourage us to avoid challenging career paths while ambiguity aversion can make us hesitant to approach roles we don’t know much about. Both biases can stop us from exploring new job opportunities that seem risky or uncertain, even if we don’t like our current job all that much.

How is the ambiguity effect used in marketing?

Marketers often employ strategies to reduce ambiguity and ensure potential buyers have all the information they need in order to decide whether to purchase a product. The goal is to address uncertainty rather than solely promote features. Detailed product descriptions, customer reviews, money-back guarantees, and clear warranties can all reduce ambiguity. Including visuals of products can also be helpful, as people may be more willing to try new options when they know what to expect—this is why, in a restaurant, you may be more inclined to order menu items with featured images rather than simple text descriptions.

While most brands focus on reducing the ambiguity of their products, some brands go a step further by drawing attention to the ambiguity of competitors. For example, you might be familiar with “ours vs others” comparison charts on product pages. These charts highlight all the great features the brand’s product offers that competitors lack but omit what the competitor’s product does include. Even if the competitor has the superior product, this ambiguity can make shoppers inclined to avoid it in favor of the product with more information. Similarly, brands might craft messaging that indicates what we don’t know about their competitors, pointing to questionable ingredients, unclear manufacturing processes, or a lack of transparency in sourcing, while directing readers to their own third-party test results or lengthy information pages detailing their commitment to quality. Overall,  businesses constantly use the ambiguity effect to position their products as trustworthy while making other products seem less reliable.

The concept of the ambiguity effect was first developed by Daniel Ellsberg in 1961.⁷ While the term “ambiguity effect” was not coined in this paper, it laid the groundwork for the theory behind this cognitive bias.

In this paper, Ellsberg outlines a hypothetical experiment that has become one of the most common examples used to explain the ambiguity effect. 

Imagine you are playing a carnival game where you can win $100 by drawing a ball of a certain color from a bucket. The bucket contains 90 balls, 30 of which are red. An unknown proportion of the remaining 60 balls are yellow, and the rest are black. You are told to choose whether you want to try to draw a red ball or a yellow ball. Drawing a ball of the color you bet on will win you the $100, while drawing a black ball or a ball of the color you did not bet on will get you nothing. 

The majority of people state that they would rather bet on the red ball. What makes this interesting is that the odds of drawing a yellow ball are equal to the odds of drawing a red ball. The probability of drawing a red ball is ⅓, because 30 of the 90 balls are red. The probability of drawing a yellow ball is also ⅓, because the number of yellow balls is equally distributed between zero and 60. Thus, the reason people choose to bet on drawing a red ball has nothing to do with statistics. It has more to do with the fact that we prefer the known to the unknown.

Users often gravitate towards digital products with familiar interfaces and features, even if newer or less familiar products might offer better functionality or efficiency. This is because the ambiguity of learning a new system or adapting to unfamiliar features deters them from exploring potentially superior options. The same thing goes for when a digital product undergoes significant updates. Users may resist adopting the new version and be hesitant about what the changes may bring. Companies like Facebook and X (formerly Twitter) face constant backlash for switching up their user interfaces, making users feel less confident navigating systems they already felt comfortable with.

The public’s initial hesitation to use online banking is another great example here. A 2006 study exploring why consumers weren’t using online banking discovered a few common obstacles: perceptions about risk, lack of knowledge, and lack of need.10 All these factors all point to ambiguity. At the time, people didn’t know a lot about online banking, how it worked, or why it might offer additional value over traditional banking. People frequently voiced concerns about being able to navigate online banking platforms and ensure the security of their transactions. For most of us today, online banking feels familiar and decidedly unambiguous. It likely helps that nearly every online banking platform highlights security as a key feature, offers several easy-access customer support channels, and provides step-by-step onboarding processes for new users—all designed to reduce ambiguity and ensure people feel comfortable.

People often hesitate to trust AI systems for critical decision-making, such as in healthcare diagnoses, legal advice, or financial planning. This is because the complexity and perceived unpredictability of AI algorithms create uncertainty about their reliability and effectiveness. Users tend to favor human judgment in these areas, perceiving it as more transparent and understandable. However, we may miss out on the opportunity to save time and resources, as well as make more accurate judgments, if we continue to write off AI as being too “ambiguous.”

The ambiguity effect is often seen in medicine, on both the side of the patient and the side of the doctor. 

 From the doctor’s perspective, it is preferable to recommend a treatment that they are familiar with, rather than one that they don’t know much about or that is not typically used to treat this specific condition. The hesitation here is valid. The Hippocratic Oath clearly says “do no harm” and a doctor may feel that they are going against that by recommending a treatment when they are uncertain of the effects it might have.⁸ Yet, when conventional treatment is unsuccessful, going down the more ambiguous route may be the best way to help the patient.

On the patient’s side, the ambiguity effect typically occurs when their healthcare provider does not explain the recommended treatment well enough for it to be understood by a layperson. A lack of clarity prompts unease on the part of the patient, making them hesitant to follow through with the doctor’s treatment plan. They feel as though they are missing information, which can trigger ambiguity aversion. Thus, healthcare providers should explain all relevant treatments clearly and without the use of medical jargon.⁹

Ensuring that the patient understands the treatment being recommended to them makes the treatment option less ambiguous. This will encourage the patient to agree to this treatment which is in their best interest.

Anyone who works in sales should be aware of the ambiguity effect. The amount of information available to your customers can have a big influence on their decision to purchase one of your products.

Take a car dealership, for example. Suppose someone is attempting to choose between two similar vehicles, one at your dealership and one from another dealership. Should you be lacking certain information about your car that your competitor can provide about their car, you likely won’t make the sale. The customer would rather choose the car that they know more about because it feels like the safer move.

The ambiguity effect also comes into play with website design. If you run an online store but fail to provide information like duty fees and shipping times, potential clients may be deterred from buying from you. Instead, they might gravitate towards a website where they can purchase similar products but also have ready access to this information.

What it is

The ambiguity effect describes how our decision-making is influenced by how much information we have. Specifically, we have an aversion to options for which we feel are lacking information.

Why it happens

The ambiguity effect may be the result of a heuristic to avoid options for which we feel we don’t have sufficient information. Additionally, people with higher levels of ambiguity aversion are more likely to display this behavior.

Example 1 - Choosing a treatment plan

In medicine, both doctors and patients can exhibit the ambiguity effect. Doctors may hesitate to recommend a treatment that they are unfamiliar with even though it may be in the patient’s best interest. Patients, on the other hand, may be unwilling to receive treatment that they feel they lack information about, making it important for doctors to ensure that they explain their recommended treatment plan clearly and without using jargon.

Example 2 - Making a sale

Store owners can lose business due to the ambiguity effect. If customers find that certain information is not provided at your store, but is readily accessible at your competitor’s, they may choose to shop with your competitor to avoid ambiguous options.

How to avoid it

To avoid the ambiguity effect, we must take an effortful, active approach to decision-making. Instead of automatically choosing the less ambiguous option, we should identify what we don’t know about that option, as well as recognize the potential benefits of choosing the more ambiguous option.

The EU Consumer Policy on the Digital Market: A Behavioral Economics View

This article applies a behavioral economics perspective to online shopping. Specifically, the author draws a connection between the problems faced by consumers within the EU and three principles of behavioral economics, one of which is the ambiguity effect.

The Mere Exposure Effect

Similar to the ambiguity effect, the mere exposure effect is rooted in our human nature to seek comfort in the familiar. While the ambiguity effect describes our preference for known outcomes over unknown outcomes, the mere exposure effect causes us to prefer things simply because they are familiar to us, even if we don’t know much about them at all. Check out this article to learn how repeated exposure encourages us to develop preferences, and how this can influence our decisions.